Share buybacks aren’t about propping up the price (when done correctly). They’re about tax efficiently increasing your ownership share. Or you can think of it as paying money now to reduce the amount you need to pay in dividends, all else equal.
Share repurchasing is just a tax efficient way to return money to shareholders. People love dividends yet look at buybacks as insane. Why?
* Note: buying back shares when your company is overvalued is insanity. I’m not endorsing that. But if you’re in a situation like AAPL, they are hands down the correct move.
Given that there's an incentive to spend other peoples money(shareholders who bought shares) to increase their own(via bonuses, salary, or granted shares) it's fairly safe to assume that execs are following the incentive
This isn't any more true for the executives than any other shareholder, and doesn't really work that way anyway. Buybacks don't increase the value of shares unless the company was undervalued or making less efficient use of the cash than their other capital, and in that case they're smart to have done it.
> via contractual bonuses
The way to solve this is to do accounting for buybacks (and, for that matter, dividends) when calculating bonuses. You obviously don't want to have executives choosing whether to do these things based on that, so don't.
There was a price at the current supply and demand. Buybacks increase the demand which increases the price. The buybacks may be a bad idea and lower the demand from the marketplace but that information takes more time to disseminate and is harder to actually determine where as someone buying up millions of shares is a piece of information that is immediatley known.
>You obviously don't want to have executives choosing whether to do these things based on that, so don't.
That is what people who have problems with buybacks but not dividends, would like to see happen
The company has a value. If the P/E ratio gets worse because the share price went up with the same earnings, more investors will find it profitable to cash out and invest in something with a better ROI. That doesn't happen instantly, but it happens quickly, because cash-flush investment banks realize they can front-run the correction for a profit, which makes it happen.
But the buyback itself often actually improves the ROI of the company and legitimately makes it worth more, because the company itself was getting high returns on its productive capital and low returns on its cash, and now less of its share value is represented by the low productivity cash.
> That is what people who have problems with buybacks but not dividends, would like to see happen
Except that then the perverse incentive for managers becomes to boost the stock price by not issuing dividends, since dividends reduce the stock price. The only real way to fix it is to fix their incentives, and once you do that you're back to preferring buybacks due to the tax treatment.
Buying back shares is repaying that money.
It's a good thing that companies can repay the money they have borrowed, and a good thing that they are doing it.
Given an interest rate regime, CFO's will react accordingly and this is that reaction.
Also, it's odd to see dividends and buybacks in the same data.
Finally - both activities are not bad at all. Buybacks are a strong signal to the market the company believes in it's valuation (FYI investors have access to the same 'cheap capital') and dividends are profits getting out.
None of this is bad, but it's going to get hard to get off of the sugar addiction.
If companies just took on debt to issue a dividend, the share price would be devalued by the market by the dividend amount due to the debt so it would be a pointless exercise.
The TCJA passed by the republicans got rid of the tax system that was causing the problem and switched the USA to a territorial income tax system like other countries have.
https://www.taxpolicycenter.org/taxvox/explaining-tcjas-inte...
> The TCJA’s international reforms are significant. Combined with the reduced corporate rate, they largely eliminate the incentive for US firms to accrue assets overseas, while seeking to protect the tax base from avoidance by both US and foreign-based multinationals.